MELBOURNE, Australia - National Mutual Life Association, Australia's second largest life insurance and superannuation group, has bared its soul financially in a desperate attempt to get approval for the sale of 51% of the mutually owned group to France's AXA group for A$1.1 billion (U.S. $870 million).
In an extraordinarily detailed and revealing financial document, National Mutual has presented the proposed deal with AXA S.A. to its policyholders/owners, offering them a bonus of free shares when, as National Mutual Holdings, the group lists on the Australian Stock Exchange within two years.
Holders will get an average of 700 to 800 shares, worth about A$1.25 each based on AXA's purchase price, in return for relinquishing control of the group. The deal requires 75% approval of those voting at a special meeting Aug. 8.
But what seemed like a rescue by AXA a few months ago has turned into a nightmare as Australian public opinion continues to rage against the resumption of France's nuclear tests in the Pacific in September.
Now, some fear anti-French sentiment will bring out those policyholders who oppose the plan.
As a result, National Mutual pulled out all of the stops in its June 26 explanatory memorandum. The firm disclosed it urgently needs a A$600 million (U.S. $432 million) injection of capital reserves to meet the requirements in the new Life Insurance Act that took effect July 1.
In this sense, the deal with AXA has become critical. Starting in mid-1994, National Mutual began a search for potential partners or purchasers and identified 37 potential strategic investors in Australia, New Zealand, Europe and North America.
The list was narrowed to eight specific proposals, some of which didn't include subscribing new equity. Geoff Tomlinson, a managing director at National Mutual, believes the AXA proposal was by far the best proposal of the lot.
It's also virtually the only possibility for National Mutual because the time for the injection of reserves is becoming tighter. And, under the terms of the AXA arrangement, if the deal isn't approved by policy holders, National Mutual cannot start negotiating with other parties until the end of this year.
By then, with the unfavorable financial details spelled out in the documents, National Mutual would be in a very weak negotiating position.
An assessment by actuaries Trowbridge Consulting, Melbourne, shows National Mutual's net worth fell to A$560 million in 1992 from A$1.68 billion in 1988 as a result of an expensive battle for capital guaranteed business and a mauling from writedowns of property and other investment holdings.
If the AXA deal is successful, independent financial experts Ernst & Young estimated the group would have a restored value of A$2 billion to A$2.3 billion.
That would still be well below valuations put on National Mutual in 1990 when ANZ Bank, Melbourne, was prepared to pay A$3 billion for half of the group , valuing the whole group at more than A$6 billion.
But the deal was vetoed by the federal treasurer at the time, Paul Keating, as part of a policy that discouraged large bank-life office mergers.
